Renewals and Switches Under the New Rules

General Victor Anasimiv 14 Feb

Over the last decade or so, almost every year has seen another tweak to mortgage qualification rules.  However, one segment that hasn’t seen many changes is the renewal market.  As of now, as long as you’ve been paying your mortgage on time, there are no rules for qualifying for a renewal with your existing mortgage lender.  This isn’t likely to change as your lender will want to keep your business.  However, your original lender’s current rates might not be the best available.  Transferring a mortgage to a new lender could be an option worth exploring.

If you are keeping the dollar value of the mortgage the same and transferring to new lender, and your income and credit profiles are the same or have improved, the process is simple.  If the existing mortgage was originally high-ratio insured (less than 20% down at time of purchase), most lenders will grant a transfer at very competitive high-ratio rates.  If it wasn’t originally insured, not to worry.  Most lenders will still offer reasonably competitive rates on a transfer.   Qualification can be a bit more difficult though.  As of January 1st, these originally un-insured transfers must now pass a new “stress test” with the new lender, requiring qualification at an interest rate higher than the contract rate.

Another wrinkle could arise if your original mortgage was registered as a collateral charge, which is the case for most re-advanceable mortgages (mortgages with a secured line of credit component).  Many lenders have taken steps to address this “wrinkle” and now have specific programs available which allow the transfer of these mortgages.  A few years ago, this wasn’t the case.

Regardless of the type of transfer, most lenders will cover some or all of the transfer costs for bringing your business to them.  So it really does pay to explore your options.

When it comes time to renew, you may decide you’d like to consolidate other debts or perhaps access some of the built-up equity in the property.  As soon as you add any money to your mortgage balance, it becomes a refinance.  You are no longer eligible for qualification under transfer guidelines and must qualify under the new refinance “stress test”.  See our previous blog post here for more details.

As you can see, there are many options available to you at renewal time.  We always try to reach out to our clients when their mortgage is coming up for renewal, just to make sure that you have the best mortgage suited for your specific goals.  It’s definitely worth having that conversation, even if the end result is to stick with your current lender for another term.  Feel free to contact me anytime to see what I can do for you!

 

Assessed vs Market Value

General Victor Anasimiv 19 Jan

Homeowners here in the Comox Valley, and in fact across most of Vancouver Island and the lower mainland, probably suffered a bit of “sticker shock” when they opened their latest property tax assessment notice.  Increases were anywhere between 10% to 35%.  The highest increases in value were noted for condominiums in urban areas.   The average value of a single-family dwelling went up 14%, 20% & 22% in Comox, Cumberland & Courtenay respectively.  For a full rundown of increases on Vancouver Island & The Sunshine Coast, take a look at the chart below.  This assessment is based on an estimate of market value as of July 1, 2017 and is used by taxing authorities for determining the share of municipal and provincial property taxes owners will pay.  Rest assured that a 22% increase in property value doesn’t necessarily translate to a 22% increase in property taxes.  Municipalities adjust their tax rates to raise revenue to cover operating budgets & pay for public services.

A provincial property assessment is an approximate value based on the (broadly) estimated market value of previous years. Sale prices of homes have been increasing steadily over the past few years, so an increase in assessed value isn’t a surprise.  But the assessed value does not involve a formal site visit and makes no consideration for recent renovations, landscape work or other significant upgrades (or deterioration).  For these reasons, it is important not to focus too much on assessed value when it comes to the market value of your home.  While the assessed value is a good starting point, true market value is better determined by current market trends specific to that area.

What would someone be willing to pay to buy your home?  That is a far better estimate of fair market value.  Always enlist licensed professionals to help with this.  A local realtor can take a look at your home and give a reasonable estimate of true market value.  It may even be worth hiring an appraiser to get a more accurate value.  An appraiser is an educated, licensed and heavily regulated third party offering an unbiased valuation of your property. An appraisal factors in all characteristics of your home and then compares it to a short list of recent property sales in the same area.

You will likely discover that the market, or appraised value, of your home is significantly higher than the assessed value.  These terms can mistakenly be used interchangeably, but they are definitely not the same.  Feel free to contact me anytime if I can help explain the differences further.

Community                2017 Value       2018 Value          % Change
Greater Victoria
City of Colwood $500,000 $571,000 +15%
City of Victoria $679,000 $779,000 +15%
Dist. of Central Saanich $614,000 $699,000 +14%
Township of Esquimalt $556,000 $655,000 +18%
Dist. of Saanich (SD#61)* $653,000 $759,000 +17%
Dist. of Saanich (SD#63)* $836,000 $940,000 +13%
District of Oak Bay $1,036,000 $1,156,000 +12%
City of Langford $456,000 $551,000 +21%
Dist. of North Saanich $767,000 $876,000 +14%
District of Metchosin $574,000 $716,000 +25%
District of Sooke $394,000 $462,000 +17%
District of Highlands $487,000 $559,000 +14%
Town of View Royal $604,000 $666,000 +11%
Town of Sidney $528,000 $632,000 +20%
Victoria Rural $435,000 $495,000 +14%
Gulf Islands Rural $634,000 $727,000 +15%
Gulf Islands Rural $426,000 $476,000 +12%
*SD = School District
Central Island
Town of Ladysmith $336,000 $391,000 +17%
Town of Lake Cowichan $228,000 $278,000 +22%
City of Duncan $267,000 $312,000 +16%
Dist. of N. Cowichan $341,000 $399,000 +17%
Cowichan Rural $411,000 $483,000 +18%
Lake Cowichan Rural $321,000 $378,000 +18%
District of Lantzville $442,000 $535,000 +21%
City of Nanaimo $385,000 $441,000 +15%
Nanaimo Rural $335,000 $396,000 +18%
Town of Qualicum Beach $449,000 $546,000 +22%
City of Parksville $361,000 $440,000 +22%
Oceanside Rural $440,000 $524,000 +19%
District of Tofino $576,000 $654,000 +14%
Town of Ucluelet $290,000 $366,000 +26%
City of Port Alberni $193,800 $240,000 +22%
Alberni-Clayoquot Dist. $317,000 $362,000 +15%
North Island
City of Courtenay $360,000 $440,000 +22%
Town of Comox $392,000 $444,000 +14%
Village of Cumberland $302,000 $361,000 +20%
Comox Valley Rural Areas $395,000 $453,000 +15%
City of Campbell River $303,000 $356,000 +18%
Campbell River Rural $312,000 $363,000 +16%
District of Port Hardy $189,000 $196,000 +4%
Village of Port Alice $136,000 $141,000 +4%
Town of Port McNeil $215,000 $230,000 +7%
Village of Gold River $145,000 $160,000 +10%
Village of Tahsis $68,000 $81,000 +19%
Village of Alert Bay $112,000 $119,000 +6%
Village of Sayward $137,000 $142,000 +3%
Village of Zeballos $89,000 $85,000 -4%
Port Hardy Rural $148,000 $161,000 +9%
West Coast Rural $133,000 $134,000 +1%
Powell River
Powell River Rural Areas $217,000 $256,000 +18%
City of Powell River $234,000 $297,000 +26%

 

From Home A to B: Use Bridge Financing to Get You There

General Victor Anasimiv 28 Nov

Maybe you’ve met your soulmate and it’s time to move out of your studio apartment.  Perhaps baby #2 is on the way and your 2-bedroom starter home is starting to feel a bit cramped.  Or maybe you’re retiring to a big sprawling acreage in the country. Whatever the reason, it’s time to purchase a new home.  In a perfect world, most people would want to have possession of their new home before the current one sells.  The overlap allows time for painting, touchups and other renovations.  Life is not perfect though.  Unless you can qualify and afford to pay two mortgages, typically, the down payment for the new purchase is coming from the sale of the current home.  If the sale closes after the purchase and funds are needed in the interim, that’s where bridge financing comes in.

Bridge financing allows you to bridge the financial gap between the firm sale of your current home, and the firm commitment to purchase your new home.  The key word here is FIRM.  In order to secure bridge financing, all subjects must be removed from the sale.  Without a firm sale, a lender can’t accurately determine how much equity you have available to go towards the new purchase.

You will want to make sure that your new lender is a lender that does in fact offer bridge financing.  And that’s the benefit of working with a mortgage broker.  I have access to a wide array of lenders, as well as first-hand knowledge of which lenders will offer bridge financing.  The cost of bridge financing can vary between lenders, but has two components: an administrative fee plus interest charged on the loan.  The interest rate will be higher than for a traditional mortgage, but you’re paying for the convenience, and ideally the bridge financing will only be in place for a short period of time.  You can expect a rate somewhere around prime + 2 to 4% (prime = 3.2% at the time of this writing).  The maximum term of the loan will also vary from lender to lender, but is typically between 30-90 days.

Upon approval, the bridge loan proceeds are advanced “in trust” to your solicitor, along with instructions from the lender to ensure that the required net proceeds of sale of the existing home are directed back to the lender to repay the bridge loan.

Now, what happens if your home doesn’t sell?  That’s why the lender requires a firm sale agreement with subjects removed in order to qualify for a bridge loan.  If you don’t have a firm selling date and can’t wait any longer to complete the purchase, you may need to explore private financing.  This option can be more expensive as there are lender and broker fees charged and the interest rates are much higher.  Though expensive, it could be cheaper than lowering the sale price of your existing home just to get the sale.

 

No two mortgages are created equal, and this is even more true for bridge loans & private financing.  There are a lot of differences between lenders and it can take a lot of work sorting through everything.  Save your time and get a mortgage broker like me working for you.  If you have any questions about bridge financing, or any other mortgage-related questions, give me a call today.

Home Inspection – Definitely worth the money!!

General Victor Anasimiv 14 Nov

When purchasing a residential property, one of the more common conditions seen in a purchase contract is the buyer obtaining and being satisfied with a property inspection, which should be conducted by a certified home inspector.  The inspector’s job is to provide information about the building being purchased. This information helps the buyer decide if the home or building is worth purchasing or if there are major defects that could effect the purchase decision negatively.  A thorough home inspection will cover almost every aspect of the home and any other buildings on the property.  Structural elements, roof, full interiors & exteriors, & plumbing, electrical & heating systems are some of the components that should be inspected.  Even the attics & crawlspaces will be inspected by a good quality inspector.

Upon completion, the inspector should provide you with a thorough report, complete with pictures, that has a section devoted to each system or structure in your home.  If there are any deficiencies, they would be noted here, as well as how severe they are and how they can be remedied.

As far as protecting the buyer’s interest, a thorough home inspection is probably one of the most important steps when purchasing a home.  But unfortunately, they can be overlooked in a buyer’s rush to get an accepted offer.  Take for example, the bidding wars on residential properties currently happening in Canada’s largest cities.  Prospective buyers have been forfeiting their right to a home inspection as they place subject-free offers in order to avoid rejection.  Yet giving up your right to a home inspection could potentially result in repairs that could cost thousands of dollars.  This is a mistake that can easily be avoided.

An inspection is important whether you’re buying your own home or even an investment property.   An investment property should be making money, not losing it.  It would be unfortunate to purchase a rental property with no inspection done, to find out a couple months later that the roof needed to be replaced.

Similarly, for sellers, pre-listing inspections can be just as beneficial.  They can be used as a bargaining chip.  If a seller gets an inspection done beforehand, they may be able to get a higher asking price.  If any deficiencies arise, the seller can decide if they want to repair it or not.  Even if they decide not to do the repairs, being transparent about any issues could provide additional negotiating power.

As with any service, it’s good to shop around.  Have a quick chat with a couple inspectors.  Ask your realtor to suggest a good referral.  Compare fees.  Regardless, make sure you get one if you’re purchasing a new property.  In the long run, it will probably pay off.

 

Self-Employed? Here’s What You Need to Know About Mortgages.

General Victor Anasimiv 2 Nov

According to Stats Canada, more than 2.7 million people in Canada are self-employed, or business-for-self (BFS).  Entrepreneurs serve an important function in our economy.  Successful self-employed people are typically very hard workers.  After years of working long hours to save up enough for a down payment, BFS borrowers might assume that the mortgage qualification process for them would be identical to the process for anyone else.  But nothing could be further from the truth.  It’s important to know, in advance, what additional hurdles you might face.

Prior to 2008, BFS applicants could obtain a mortgage simply by proving they had a business with an active business license (and good credit, of course).  Their income could be stated arbitrarily, as long as it was realistic for their industry.  Since then, mortgage regulations have progressively tightened, especially on “stated income” loans.

Here’s what BFS-er’s need to know!

First of all, if you have a history of provable income, everything is fine.  Has your business been active for at least 2 tax years, claiming enough income on your taxes?  If your 2-yr Total Income average (line 150 on your tax returns) is sufficient to qualify, it’s business as usual.  You qualify just like an employed borrower and generally have access to the same mortgage products, rates and terms.

Many BFS clients we deal with have been encouraged by their accountant to write off as much of their income as legally possible.  By claiming legitimate expenses and personal deductions, you can artificially lower your total income, thereby reducing the amount of taxes payable.  That’s great at tax time, but if you plan on applying for a mortgage in the near future, you’ll want to rethink this strategy.  In order to qualify for best rates, lenders will look at your line 150 – Total Income, not your gross business income.  If you earn $100K a year but write your income down to $40K, that $40K figure will be the one lenders accept as qualifiable income.

Some lenders allow “Grossing Up” of your total income.  Rules vary, but usually you can add 15% to your 2-yr average income and still have it considered qualifiable income for best rates. For example, if your 2-yr average Line 150 income is $65,000, a lender who allows “grossing up” will use an income of $74,750 for qualification.  In some cases, this bump may be enough to meet debt servicing requirements.

If not, another option is to qualify for a “stated income” mortgage.  The stated income must be realistic as determined by the lender, usually based on the type of business, the industry sector and time in business.  The 2-year minimum rule is still typically in play and lenders usually won’t allow a borrower to state their income higher than their recent annual gross business income.  “Stated Income” interest rates are nominally higher, by about 10-15bps (0.10-0.15%).  Monthly mortgage payments will be about $5-8 more for every $100K owing.

While this can help get you qualified, there are additional conditions involved with “stated income” files:

  • your credit profile must be squeaky clean.  It’s OK if you owe money on your cards or lines of credit, but it’s best if you keep your balances as low as possible.  Every $12,000 in consumer debt will decrease your maximum mortgage by about $100,000.  It makes a big difference.  Plus, if balances are close to the limits, this will really drag your overall credit score down.  Most importantly, stay on top of your payments.  Missed payments, especially on previous mortgages, will stick out like black eyes when a lender examines your credit worthiness.
  • pay your taxes!  Anything owing to Canada Revenue Agency comes first.  If you owe a lot of back taxes (GST/HST included), a lender will take a pass on your approval until taxes are brought up to date.
  • more down payment/equity may be necessary.  Usually the required down payment is 20% to avoid mortgage default insurance.  With “stated income” files, this minimum jumps to 35%.  There are always exceptions, but the exceptions are usually granted by private or B lenders, who charge higher rates and additional lender fees.  At a minimum, you will need a 10% down payment.

In preparation of getting approved for a mortgage, as a self-employed borrower, you have a bit more homework to do compared to the typical income earner.  Start collecting your documents now.  A lender will likely ask to see many of the following:

  • T1 Generals & Notices of Assessment (NOAs) for the previous 2 years.  The T1 General is the tax booklet submitted at tax time and the NOA is what Canada Revenue Agency sends back to you.  If your T1 Generals included a section called ‘Statement of Business Activities’, make sure that’s included.
  • proof that you have paid any income taxes owed, as well as any HST or GST owing
  • financial statements for your business for the last 2 years prepared by an accountant or other qualified 3rd party
  • copy of your business license and/or article of incorporation

These days, the mortgage qualification rulebook is constantly being re-written, especially if you’re self-employed.  It’s important to make sure you’ve thought of everything in advance to avoid any last-minute surprises.  That’s where having a knowledgeable mortgage broker works to your advantage.  If you have any questions or just want some more info, give me a call today – 250-338-3740

The Purchase Process – What are My Closing Costs?

General Victor Anasimiv 24 Oct

When it comes time to get serious about purchasing a home, it’s important to do your homework and make sure you have a team of knowledgeable professionals working with you:  a realtor familiar with the area in which you’re shopping around, a notary or lawyer who can work around your schedule, and a mortgage broker who understands your needs and has helped you with the pre-qualification process.

Perhaps you’ve saved up enough of your own money for a down payment.  Or maybe you’re being gifted the funds by a generous family member.  Regardless, in addition to down payment funds, you must also have money set aside for closing costs.  Total costs will vary according to the transaction, but your mortgage lender will want to know that you have additional money on the sidelines to cover these costs.  Some lenders will require proof that you have 1.5% of the purchase price available for closing costs, especially if it’s a high-ratio purchase (less than 20% down).  So an important part of the homework leading up to purchase time is gathering estimates of any fees & costs that may be applicable to you.  The following is a list of potential, but not exhaustive, closing costs you may encounter upon completion of your purchase.

Mortgage default insurance

You may be more familiar with the terms CMHC or Genworth insurance, as they are the largest mortgage insurers in Canada, with Canada Guaranty being the third.  Mortgage default insurance provides protection to your lender if you happen to default on your mortgage.  If you are putting less than 20% down, your mortgage is known as a high-ratio mortgage and subject to a mortgage default insurance premium.  The premium is calculated as a percentage of the mortgaged amount and the percentage will vary based on the total down payment.  For example, if you put between 5 and 9.99% as down payment, your insurance premium is calculated at 4% of the loan amount.  If you can manage a down payment of 10 to 14.99%, the premium drops to 3.1%.  You can opt to pay the insurance as a lump sum, but the majority of borrowers simply have the premium added to the mortgage amount and amortized with the rest of the loan.

Property transfer tax

In B.C., when you purchase or gain an interest in a property, you’re responsible for paying property transfer tax.  The tax is based on the fair market value of the property at the date of registration, unless you qualify for an exemption, which can be granted under certain conditions to first-time home buyers or buyers purchasing a newly built home.   In B.C., the tax is charged at a rate of:

  • 1% on the first $200,000;
  • 2% on anything over $200,000 up to and including $2 million; and
  • 3% on anything over $2 million.

For example, if the fair market value of a property is $600,000, the tax owed will be $10,000.

GST

Newly built homes are subject to GST at purchase. There are rebates and exemptions available and your solicitor should calculate the amount payable for you.  The GST is added to the purchase price, less any rebates.  Your down payment will be calculated based on this total purchase price.

Home insurance

This insurance must take effect from the moment you are the owner of your home. Certain types of properties can be more challenging to insure and it’s always a good idea to research the property you’re interested in purchasing to see how much insurance will cost.  Some lenders, such as local credit unions, will require additional earthquake insurance.  Home insurance typically costs around $1,200 per year, but costs will vary depending on the type, location and any unusual characteristics of the property, such as outdated construction materials.

Home inspection fee

The purpose of a home inspection is to ensure you are making a sound investment. A good home inspection should cover nearly every element in and around a home and other structures on the property. Roofing, full exteriors, structural elements, full interiors, plumbing, electrical, heating and air conditioning, and all of the components of these are subject to inspection. It is a good idea to do your research before hiring a home inspector. Your realtor may be able to recommend someone, or you can check with friends or family to see who they have used. A good home inspector will spend three to four hours going over your home, then spend time with you explaining his/her findings. Inspectors provide a written report documenting any concerns that need to be addressed. You can expect to pay $400-$500 for an inspection.

Appraisal fee

An appraisal is not the same as a home inspection.  While a home inspection is more for your own peace of mind, your lender may require an appraisal to confirm fair market value. Most lenders will pass the cost of an appraisal on to you. Depending on the location and complexity of the property, an appraisal can cost anywhere from $300 to $1,500. Some lenders have an internal valuation system they use with the intention of bypassing the appraisal requirement.  If the property passes this test, there is usually a much smaller fee associated with it.

Title insurance

Title insurance is mandatory with most lenders.  The price can vary based on property value, but is typically about $250.  In addition to protecting against title fraud, this insurance will protect the lender from various issues with the property, such as violations of municipal by-laws or encroachments onto an adjoining property.  It’s important to note that this insurance is for the benefit of the lender. Homebuyers can purchase an additional personal policy if the choose.  It is relatively inexpensive if the two policies are purchased together.

Legal fees and disbursements

On a straightforward transaction, legal fees typically run about $1,200-$1,400. Your solicitor will also calculate any money that is owed to the seller for your portion of items that have been paid in advance, such as municipal property taxes or utility bills.

As your mortgage broker, I will do my best to make sure you’re aware of any potential fees or additional costs that might be encountered.  But with a bit of preliminary research and discussions with your realtor, you can be sure that you’ve put enough money aside so there are no last-minute surprises during the purchase process.  Prior planning prevents poor performance!  Let me help take the stress out of the process.  Call me today!

An “Engineered Slowdown” of the Canadian Housing Market

General Victor Anasimiv 17 Oct

Think back to the beginning of July.  Vacations were just getting started.  Summer weather was in full swing, at least here in BC.  Seems pleasant, but mortgage brokers across Canada were quietly dealing a new round of frustration.  On July 8th, the Office of the Superintendent of Financial Institutions (OSFI), the big banks’ supervisor & regulator, published draft revisions to the guidelines for residential mortgage qualification, specially for uninsured mortgages.  You may recall that in the fall of 2016, sweeping changes were made that included a new stress test for insured borrowers.  After that change, a borrower with less than 20% down-payment would now have to qualify at the Bank of Canada benchmark rate (currently 4.89%).  Prior to the stress test, the same borrower could qualify at contract rate if they chose a 5yr fixed rate (currently about 3.09%).  This “stress test” effectively decreased one’s purchasing power by about 20%.

Fast forward to now.  As of today, OSFI has made their summer draft revisions a reality.  There are a couple changes being made, but directly from their website, here is the change that will be most felt by the general publicare the changes:

OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages. Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.

OK, so what does this mean exactly?  If you had 20% available for a down-payment, you could avoid the “stress test” and still qualify at the contract rate.  As of January 1, 2018, this will no longer be the case.  As of that date, the minimum qualifying rate for uninsured mortgages will be “the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%”.

Perhaps this is best explained with an example. Let’s assume the purchaser (or purchasers) has a total qualifiable annual income of $75,000, no other debts and a decent credit history, and has access to the required 20% down payment (own resources or gifted).  Under the current rules as they are, if you chose a 5-yr fixed rate term (currently about 3.39%), this income would likely qualify for a purchase of about $565,000.

After January 1, 2018, the qualifying rate for this mortgage will now be 5.39% (the greater of the benchmark rate 4.89%; or the contract rate +2% = 5.39%).  At this higher rate, and all other variables being equal, the maximum purchase price drops to about $450,000.   Purchasing power has dropped by about 20%.

So why is this happening?  OSFI’s official explanation is that “these revisions reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada”.   These changes are part of an “engineered slowdown” of the Canadian housing market.  The general consensus from mortgage brokers and real estate agents across the country is that this approach is a bit too heavy-handed.  Perhaps it would be more prudent to leave sufficient time to gauge the previous changes before making new ones.  As with the fall 2016 changes, there are a lot of unanswered questions, and as brokers, we fully expect further clarifications and explanations in the coming days and we will do our best to keep you, our clients as informed as possible.

However, regardless of the motives behind these changes and any consequences, anticipated or not, they are happening.  If you’ve been toying with the idea of purchasing or refinancing, now is a very good time to thoroughly examine all options as your goal will be pushed a little further out of reach in the new year.  I’m more than happy to discuss these new changes with you and to help figure out your best course of action moving forward.  Contact me today!

 

So You Want to Buy an Investment Property…

General Victor Anasimiv 16 Oct

Rental vacancy rates are at historic lows on Vancouver Island.  If you’ve been looking for productive ways to invest your money, perhaps you’ve been thinking about purchasing an investment property as it seems like a pretty safe bet.   The purchase of any new property is an important decision – one that should be planned for and executed carefully.  It’s one thing to purchase a new home to live in yourself.  It’s another thing entirely to purchase a rental property.  While the purchase process – viewing the property, making an offer, signing contracts, etc – unfolds the same way, getting a mortgage can be quite different.  The government has imposed regulations that have altered the qualification criteria and lenders have created different mortgage products crafted with investment properties in mind.

The first step in the purchase of any property should be organizing your financing. Here are a few important, but often overlooked points to be aware of:

  • Have you saved up a sufficient down-payment?  The minimum down-payment on an investment property is 20%, unlike the required minimum of 5% on an owner-occupied property.
  • Recent regulatory changes by the government have forced lenders to price mortgages differently. Best rates are no longer available on rentals. Expect a rate 10-25 basis points higher than the rate offered for an owner-occupied home.
  • Are your income taxes up-to-date?  A lender will want to know that you’ve filed your most recent year’s taxes.
  • Have you explored your options for property management?  Do you know how much it will cost?  Are you better off handling property management yourself?  Do you consider yourself handy?
  • How large is your real estate investment portfolio already?  Some lenders impose limits on the number of rentals a borrower can own.

With this in mind, it’s important to determine just how much you qualify for, which is my job.  You will need a sufficient annual income to cover the anticipated mortgage, property tax & insurance costs, in addition to all of your other debts, which includes mortgages currently in place on your primary residence or existing investment properties.   To help keep debt servicing in check, rental income from your existing properties & the new rental can be used to help boost your total annual income.  Exactly how much can be included can depend on certain factors, such as:

  • the lender, as each has its own guidelines regarding rental income.  Some allow 50% of the rent to be used while others allow 80%.  Some treat it as an addback, simply adding the allowable rental income to overall income, while others treat it as an offset, deducting the rent from overall housing expenses.
  • the location of the property. Rental income from a rural property may be looked at differently than rent from a condo in the city.
  • the type of property.  Is it a standalone single family dwelling?  Is it a 4-unit townhouse?  Or is it a rental suite attached to your primary residence.   These differences will matter.

Before jumping into the purchase, you’ll want to make sure that this property will actually turn a profit for you.  Is the property currently tenanted?  If so, a current lease will let you know how much rent to expect.  On the purchase of a rental property, an appraisal is almost always required.  If the property is currently sitting vacant (which probably isn’t likely these days), an addendum can be added to an appraisal whereby the appraiser determines a value for fair market rent, and we can use that figure in your application for financing.

Becoming a landlord carries a lot of responsibility.  It is important that you are aware of what is expected of you legally, and equally as important, what rights you have as a landlord.  The government of BC provides a lot of info to help both individuals maintain a working relationship.  Here’s a link to their page. Rules and regulations might be different in other provinces, so be sure to do your homework on the subject.

As you can see, there are a lot of variables and key points to be aware of when purchasing an investment property.  It’s my job to take care of the financing part of the purchase.  I’m with you every step of the way to make sure nothing is forgotten and that we’re getting you the best rate and mortgage possible.  I can also help you plan for the future, helping you determine the best property to purchase to achieve your goals, and figure out what the next steps will be.  If you’re thinking about an rental property to diversify your investment portfolio, give me a call today

250-338-3740

Is it Time to Lock in a Variable Rate Mortgage?

General Victor Anasimiv 10 Oct

Approximately 32% of Canadians are in a variable rate mortgage.   Up until very recently, rates have been declining steadily for the better part of the last ten years, so this has worked well.

Recent increases in mortgage interest rates understandably trigger questions and concerns, which are best handled by a discussion with me, an independent mortgage expert, not the lender. There are details & conditions you might not be aware of, and there is no guarantee that a lender will cover all the bases.

Over the last several years, there have been headlines warning us of impending doom with both house price implosion, and interest rate explosion.  Other than a couple very localized & brief instances, very little of this doom & gloom has come to pass.

Before accepting what a lender may offer as a lock-in rate, I highly recommend having a quick discussion with me to review all of your options. Especially if you are considering freeing up cash in the future for such things as renovations or travel or investing towards your children’s education.  Even if you just want to lock in the outstanding balance, having a conversation about pre-payment penalties is crucial because they will change when you switch from a variable to a fixed rate.

In the vast majority of variable rate mortgages, the usual pre-payment penalty is 3 months interest.  There are exceptions to every rule – if you opted for a low-rate no-frills type of mortgage, it may come with a larger penalty.  But 3 months interest is usually the standard.  On the other hand, the pre-payment penalty for fixed rate mortgages can be quite substantial, even if you’re early on in the term of the mortgage.  It’s known as the interest rate differential (IRD) and is based on factors such as your current rate, the posted rate for a comparable mortgage and the amount of time left in your term.  It’s a fairly complex calculation and is typically many times higher than the standard 3 months interest penalty.

These massive penalties are designed for banks to recuperate any losses incurred by clients (you) breaking and renegotiating the mortgage at a lower rate. And so locking into a fixed rate product without careful planning can translate into a significant financial downside for the client.

Another common misconception involves the lock-in rate.  “Locking in” your mortgage doesn’t freeze the current rate on your mortgage.  Rather, you will lock into a rate offered by your lender, which could be based on the length of time left in your term.  Or you could be forced to start a new 5-yr term, and there is no guarantee that the rates offered will be current best rates.

On the other hand, there is something to be said for the peace of mind that comes with having a fixed rate mortgage.  You know what your payments will be for the full term and never have to worry about them increasing.  If it helps you sleep at night and alleviate any concerns, maybe locking in is the better option.  Generally speaking, there is no ‘correct’ answer that applies to everyone because everyone’s situation is unique.  There is only a ‘specific-to-you’ answer, and the best way to come up with that answer is having a conversation with me, your mortgage broker.

Life is variable, perhaps your mortgage should be too.

As always, if you have questions about locking in your variable mortgage, breaking your mortgage to secure a lower rate, or any general mortgage questions at all, I’m here to help!  Contact me today at 250-338-3740

(with info taken from the monthly DLC newsletter)

What is a Monoline?

General Victor Anasimiv 27 Apr

When shopping around for a mortgage, you may be tempted to simply walk into the bank or credit union you’ve been dealing with for years, thinking that that’s your best or only option.  But it’s in your best interest to explore all options.  While banks and credit unions do offer great rates and products, another important type of lender to be aware of is what’s known as a monoline lender.

What is a monoline?  As the name suggest, they are a lender than provides one service – mortgages.  This is their specialty.  They do not try to cross-sell on the wide array of other products typically offered by other institutions – credit cards, lines of credit, GICs, etc.  They arrange mortgage financing, and they do it well.

As they specialize in only mortgages, it’s possible that you may not have heard of them.  But not to worry as monolines are very reputable, and many have been around for decades. In fact, First National, Canada’s second-largest mortgage lender through the broker channel is a monoline lender. Many of the monoline lenders actually source their funds from the big banks in Canada, as these banks are looking to diversify their portfolios and they ultimately seek to make money for their shareholders through alternative channels.  In that sense, they are just as secure as a big bank.

Monoline lenders can only be accessed by mortgage brokers.  There is no ‘bricks & mortar’ branch that a person can walk into and talk to a representative about mortgages.  Since there are no costs associated with renting or leasing a building or paying for branch staff, this saves on overhead which in turn saves you money.  As with most things these days, everything can be handled by phone or email.  Just pick up your smartphone and call or email with any questions.  Or better yet, ask your mortgage broker for help!  That’s the great thing about having me as your mortgage broker.  I’m here to help for the life of your mortgage.

One of the most important differences between banks and monolines would be the way that pre-payment penalties are calculated.  In Canada, it’s estimated that about 60% of 5-yr mortgage terms are broken before they are over.  It is a great idea to be aware of this difference in penalty calculation.  The difference lies in how the lender calculates what is known as an Interest Rate Differential (IRD), which is based on the spread between your contract rate and the prevailing interest rate at the time the mortgage is broken.  The larger banks are notorious for using a very prohibitive method of calculating this penalty. While a big bank will use their posted rate, a monoline will typically used their unpublished rates.  As posted rates are higher than unpublished rates, the corresponding IRD will be higher. I will save the specific calculations for a future article that examined penalties more closely, but the important take-away here is that this slight difference could save you as much as $10,000 or more in certain instances.

There is certainly something to be said for familiarity.  Some clients prefer to bank with an institution they’ve heard of or banked with for years.  Others might prefer to go with a different lender in order to diversify.  But it’s important to at least be aware of all options available when it comes time to get a mortgage.  As your mortgage broker, it is my duty to educate you about these options and answer any questions you may have.  Contact me today!